For the past few decades, few things have been as dependable as the annual increase in tuition fees for post-secondary education; but for the first time in a very long period, the growth rate for tuition has decreased. According to College Board, we are seeing a drop-off in average tuition for the first time in 30 years.
Since this is the first time this has happened in a very long time, we cannot make any definitive assumptions because it could be a one-off; but it does seem to raise some red flags about what the future holds for college costs. According to the National Student Clearinghouse Research Center, admissions at post-secondary schools have been declining since the pandemic and we can assume that the price of tuition decreasing would be a reaction to these figures. The question now is whether this is just a change because of COVID or is there a bigger shift happening? Given the current headlines, student debt is something many feel needs to be focused on by the federal government and is more than likely making many reconsider whether a traditional, four-year degree is actually worth the cost.
The current job market is also, more than likely, affecting college admissions – there are still two jobs out there for every person seeking employment. With so many opportunities, it seems plausible that many are going straight from high school into the job market since it is so much less competitive than in years previous.
In Michigan, we have a few different options when it comes to saving for education: a Michigan Education Saving Plan 529 plan, a Michigan Educational Trust account (MET), and a Michigan Uniform Transfer to Minor Account (MUTMA). Each type has their own benefits and drawbacks, but we need to see what effect a potential drop in tuition prices would have on each one.
The MET plan lets you purchase college hours at today’s prices, which typically would be very advantageous given the past history of tuition increases, but isn’t nearly as advantageous if college tuition drops significantly in the future. When we look at a 529 plan, the assets must be used for post-secondary education, or the growth will be subject to a 10% penalty and potentially taxed. There are rules that allow for transferring to siblings or direct family members if a child does not use all their funds, but it is a great idea to check your plan to make sure that you are not out-saving the changing costs of tuition.
A MUTMA offers the greatest flexibility since the funds can be used for anything, not just education – perhaps the child receives a scholarship or chooses not to pursue college. The account is held in the child’s name with the adult as custodian of the assets until the child reaches age 18. The MUTMA is also the most restrictive when it comes to taxation due to the kiddie tax rules.
It can be assumed that in terms of college tuition, something is shifting when it comes to the coming generations’ perceptions about education and how important it really is. We could see some decrease in tuition costs until we get to a point where the market feels it is at a fair price. This does not mean we need to abandon one type of educational savings vehicle or stop saving for education altogether; but going forward, we need to make sure that we adjust our savings and ensure that we are using the correct savings vehicle if this does indeed happen. This is a normal part of investing – once a plan is in place, it must be revisited and reassessed to ensure that our plans still align with our goals.
